The present invention generally concerns investment banking deals and transactions and, more particularly, estimating fees for advisors for such deals and transactions.
Investment banks perform a variety of services for their clients. One common role that investment banks assume is to help companies and governments issue securities, such as equity securities (e.g., stocks) or debt securities (e.g., bonds). Further, a number of investment banks may act together as a “syndicate” to jointly assist in issuing the securities. Each investment bank that is part of the syndicate may perform a different role or share a particular role with other investment banks. The fee an investment bank earns from a deal typically depends on its role in the deal and the size of the deal.
The different advisory roles in a syndicate that an investment bank may assume for a particular deal involving the issue of new securities typically include the book runner, the lead manager, the co-lead manager and the co-manager. The book runner typically acts as the managing underwriter for the new issue. In that regard, the book runner typically maintains the book of securities sold. Also, the book runner is primarily responsible for marketing the new issue to prospective buyers. The lead manager comprises the second tier of the syndication. The responsibilities of the lead manager are similar to the book runner, but to a lesser degree. The co-lead manager shares the lead managing responsibilities with the lead manager, but to a lesser degree. Finally, the co-managers have the least management responsibility in a deal. Also, one or more investment banks may share the same role. That is, for example, a particular deal may have two book runners. Typically, the book runners receive the highest fee from a deal, followed by the lead manager, then the co-lead manager(s), and then the co-manager(s).
Another service that investment bankers often perform is to act as an advisor on mergers and acquisitions (M&As). A particular merger or acquisition deal may have one or a number of advisors. If there is one advisor, that sole advisor earns the entire fee for the deal. If there are multiple advisors, those advisors split the fee.